Adviser Jailed Since 2000 Pleads Guilty in Securities Fraud Case

By GRETCHEN MORGENSON

Published: August 18, 2006

Martin A. Armstrong, a financial adviser who has been in jail since January 2000 on a civil contempt charge, pleaded guilty yesterday to a charge of securities fraud in a criminal case stemming from trading losses incurred by his firm in 1999.

At a hearing yesterday afternoon in United States District Court in Manhattan, Mr. Armstrong, founder of Princeton Economics International, admitted to deceiving corporate investors and improperly commingling client funds in a case that prosecutors said resulted in commodities losses of more than $700 million.

Judge John F. Keenan said that Mr. Armstrong, 56, could receive a sentence of as much as five years in prison and a fine of at least $250,000.

The judge said he had not decided whether to credit Mr. Armstrong with the time he had already spent in jail when he sentences him on Jan. 3. Mr. Armstrong's lawyer said the financier should have been released from jail after 18 months as required by the civil contempt statute.

Mr. Armstrong, jailed in the Metropolitan Correctional Center in Lower Manhattan, pleaded guilty to the conspiracy charge after spending almost a week in segregated confinement, Victoria Armstrong, his daughter, said. Prison officials segregated him after contending that he had damaged an air vent in a recreational area of the jail, she said.

''I think the government just wore Marty out,'' said Thomas V. Sjoblom, a partner at Proskauer Rose who represents Mr. Armstrong. ''The court system has not been gracious in any respect toward Martin Armstrong since the criminal judge in Trenton gave him bail in September 1999.''

After being released on bail in New Jersey seven years ago as the case was unfolding, Mr. Armstrong was indicted again by federal prosecutors in Manhattan, Mr. Sjoblom said. The Securities and Exchange Commission and the Commodity Futures Trading Commission sued Mr. Armstrong in October 1999 and ordered him to turn over assets. Mr. Armstrong was jailed on civil contempt charges after failing to surrender $14.9 million in gold bars and rare coins to the government, assets that Mr. Armstrong maintained he did not have.

Last January, Mr. Sjoblom argued before the United States Court of Appeals for the Second Circuit that Mr. Armstrong had been imprisoned unlawfully for six and a half years and should be released; the appellate court has not ruled on the matter.

''The court of appeals needs to resolve this contempt issue because it impacts the sentencing in the criminal case,'' Mr. Sjoblom said.

Mr. Armstrong's guilty plea came as he and his lawyers prepared for his criminal trial, scheduled to begin on Oct. 24. Three weeks ago, the judge that had overseen the criminal case since 2000 was replaced by Judge Keenan, who immediately scheduled a trial for Mr. Armstrong.

At the peak of his career, Mr. Armstrong managed $3 billion in assets. The unraveling of his firm followed a bet against the Japanese yen that led to substantial losses. In January 2002, Republic Securities, a brokerage firm that housed Princeton Economic's accounts, pleaded guilty to conspiracy and securities fraud charges in the case and paid $569 million to victims.

Ms. Armstrong spoke with her father after he appeared in court. ''He didn't sound too happy,'' she said. ''But he had been in there almost seven years with no end in sight. I certainly feel good about his decision.''